Review

• Star Media Group posted a 4QFY16 core net profit of RM69.9mn (+81.7% QoQ, -47.4% YoY). This was within ours, but below consensus estimates at 103.3 and 89.8%. A second interim dividend of 9.0sen (YTD: 18.0sen) was declared, unchanged from the previous year.

• QoQ. 4QFY16 results includes a gain on disposal of its radio assets of RM40.3mn and impairments (related to Ocision and i.Star Ideas Factory) of RM21.4mn. Reversing them out, core net profit improved 81.7% QoQ. Better numbers were driven by increased revenue at Cityneon. Elsewhere, its print business remain soft, with revenue and PBT declining 5.7% QoQ and 32.6% QoQ.

• YoY. Revenue declined 8.5% YoY, mainly driven by a fall in print revenues (-15.0% YoY). Newspaper adex decreased 13.1% YoY due to the poor business and consumer sentiment. As a result of the business’ high operating leverage, print PBT fell at a faster pace of 47.2% YoY. Print makes up for 62.0% of the group’s PBT.

• Helping partly offset the decline, the event, exhibition, interior and thematic (EEIT) division showed strong growth. EEIT revenue and PBT grew 4.7% YoY and 211.5% YoY respectively. This is largely driven by Victory Hill Exhibition, who holds the rights to operate both Avengers and Transformers exhibits.

Impact

• We adjust our FY/17/FY18 earnings estimates by less than 1% to RM110.4mn/RM116.8mn, as we impute year-end figures into our model.

Outlook

• Our main concerns stems from challenges in its print segment. Adex clarity remains weak amid poor macroeconomic conditions. The consumer sentiment index fell further to 69.8 in 4Q2016. We are only forecasting a minor rebound in adex of 2.3% for 2017 – premised on 0.5x our GDP forecast.

• Amid weakened print profits, we expect Cityneon to play a larger role in earnings moving forward. It holds the rights to operate both Avengers and Transformers exhibits. We expect a total of seven planned travelling exhibits will be help at different location in 2017. We expect Cityneon to contribute >20% of the group’s future earnings.

Valuation

• Our TP for Star remains unchanged at RM1.95/share – based on a PE of 13.0x and CY17 EPS of 15.0sen. We remain wary of risks within its print segment, due to the existing weak adex environment. Print is the largest contributor to both revenue and earnings. We also see potential earnings risks from its OTT venture, dimsum. We expect the venture to be loss making in its initial stages, which has not been accounted for in our numbers. SELL.

Source: TA Research - 28 Feb 2017